The Article which appeared in Free Press Journal on 14th March 2019
MSME Lending
fuelled by Digitisation
MSMEs play a major role in Economic development of India. There are
around 63.4 million units and they contribute to 6.11% of the manufacturing GDP
and 24.63% of the GDP from service activities and 33.4% of India’s
manufacturing output. They have been able to provide employment to around 120
million persons and contribute around 45% of the overall exports from India.
The sector grows at a rate faster than the large ones at more than 10% pa.
About 20% of the MSMEs are based out of rural areas.They provide
employment to more than 130 million people and contribute to 45% of exports.
MSMEs are also the largest employment generator every year. As of Sep18, the
total credit in India was Rs 105.5 Lakh crores and MSMEs had borrowed Rs 24.7
Lakh cr. Large and Mid Caps borrowed Rs 44.4 Lakh cr. Year on Year the growth of overall
commercial credit was at 13.5%.
Micro loans which are less than Rs1 cr grew 22.2% year on year and SME
loans between Rs1 cr – Rs 2.5 cr grew at 18.3%.The growth was faster than the
overall growth. Share of NBFCs in SME credit increased from 13% in Sep 15 to
17% in Sep 18. The number of NBFCs lending more than Rs 100 cr to MSMEs stood
at 77 at the end of Sep 18.
The lending to MSMEs is an attractive business since, the interest rate
charged are higher, the NIM margin is higher, the NPA ratio is lower and the
risk of each loan is lower compared to Large and Medium Sector lending. The
pace of lending to SMEs were accelerated by digitalisation of economy.
The factors including :concepts like Cash less economy, demonetisation,
data mining, higher operating efficiency, adoption of new technologies, fintech
revolution, Mudra Scheme, the telecom / internet / broad band penetration and
the encouragement for new start ups have created new business models for
delivering credit to MSMEs.
There are companies today delivering credit in 3 minutes of application
for credit by using the latest technologies to disburse credit. In the year,
2017 – 2018, Mudra loans disbursed amounted to Rs 2,46,437 cr and in 2018 – 19,
so far, the loans disbursed amounted to Rs 2,02,668 cr.
The total loans disbursed under this scheme stood at Rs 7.23 Lakh crore
and more than 15.56 crore people benefited from this scheme. Apart from Mudra
Loans, the concept of P2P, where person to person lending also took off and
more than Rs 100 cr was disbursed through this system and the loans disbursed
under P2P is likely to exceed more than Rs 25,000 cr in the next five years.
The acceleration of loans to MSMEs in the last four years was
facilitated by a robust development of an eco system which was very conducive
for disbursing more loans to the needy. The digitisation process has been
adopted in Credit Assessment, Loan processing and Loan disbursement.
In the credit Analysis, the details of Aadhar card, Pan Card, their
buying behaviour, data received from ecommerce web sites like Amazon, Flipkart,
travel web sites are used to build a credit history. RBI has permitted a few
Credit rating agencies to collect information from all the banks about all the
borrowers and their credit history. The credit bureaus, calculate the credit
scores based on the details given by banks. The credit history is available for
Individuals as well as the corporates.
Today lenders are able to get this data online in a few seconds and this
is one of the inputs to decide the credit worthiness of Individuals and
corporates. Using their own models, they are able to decide the amount of
credit which could be disbursed. All this is done, without much of human
intervention and most of the processes are automated.
In the case of P2P lending, the lenders has evolved credit scoring
models in their system. They connect both the lenders and borrowers and each
put their own requirement. Lenders and borrowers are able to decide with whom
the transaction to be executed based on the interest rate, duration and the
amount of credit available.
In the last two years, India moved from a rank of 155 in data
consumption in the world to No1 today. This was facilitated by fast growth of 4
G services and introduction of smart phones in the market. This has helped to
deliver very small loans without much of processing and administration cost.
Even credit card companies have started giving automatic credit limits to
Individuals based on the credit history.
In the credit processing, the concepts like AI, Block Chain, Robotic
Process Automation are being used which quickens the process of assessment and
data is drawn from various sources and big data is being used, data mining
techniques are being applied and the decision to give the credit is taken in
minutes.
Jan Dhan, Aadhar and Mobile is making the process of digitisation in
MSME lending easier. India has one of the most advanced digital infrastructure
in the world today to deliver MSME credit and adoption of Digital technologies
will increase the share of MSMEs in total credit, which will facilitate the GDP
growth.
R Kannan is Head of Corporate Performance Monitoring and Research,
Hinduja Group. Views are personal.
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